EVEN THE RICH RECOMMEND TAXING THE RICH

There are many arguments for increasing taxes on the rich. It’s interesting and noteworthy when the rich themselves argue for higher taxes on themselves and others like them. Warren Buffet, one of the richest men on the planet and an investor without peers, has been stating since 2011 that he pays a lower income tax rate than his secretary and that this isn’t fair. [1]

Other wealthy individuals also argue that the rich should pay more. First, there’s Douglas Durst, a billionaire New York City real estate magnate, who recently stated that he supports “higher taxes on people like me.” He noted that the US “has more of a revenue problem than a spending problem.” His father, also a real estate man, created the National Debt Clock (that displays the federal government’s overall debt) and put it on a building he owned near Times Square in New York in 1989. Durst, the son, maintains it today as the US government’s debt is growing by almost $1 trillion per year. Republicans, who campaigned on balancing the budget, have increased the annual deficit to this level (and even higher in the future) by cutting taxes and increasing spending. The US hasn’t had this high a debt level in comparison to the size of the overall economy (i.e., Gross Domestic Product [GDP]) since World War II.

Durst is baffled that President Trump and the Republicans in Congress would give a tax cut to wealthy people like him. “We’re mortgaging our children’s future. … The tax cut was an overall step in the wrong direction. Nobody who has any background in economics thought the tax bill was a good idea.” [2]

Over the last 40 years, President Clinton is the only President who has balanced the federal budget and reduced the overall debt.

Second, there’s Nick Hanauer, a billionaire, venture capitalist, and serial entrepreneur, who recorded a 6-minute TED Talk in 2012 and this summer wrote an article in The American Prospect magazine, both of which argue that taxes on the rich should be increased. [3] He argues that “taxing the rich is the only plan that would increase investment, boost productivity, grow the economy, and create more and better jobs.” He states (correctly) that there is no observable evidence or plausible economic mechanism to support the claim that cutting taxes for the rich will spur economic growth. This did not happen when President Reagan cut taxes on the rich; it did not happen when President G. W. Bush did it. However, when President Clinton raised taxes on the rich, the economy boomed and the federal government balanced the budget. President Trump and the Republicans cut taxes on the rich in December 2017 and the economy has not boomed; it has continued its slow growth that began under President Obama. Furthermore, well over 90% of the benefits of current economic growth are going to the wealthy.

In Kansas in 2012, Governor Brownback and Republicans in the state legislature dramatically cut taxes on the rich, promising unprecedented economic growth. The reality has been that Kansas’s economy has under-performed neighboring states and the country. Because of the loss of state revenue, spending on schools (and everything else) has been cut dramatically and the state’s courts stepped in and ordered the state to spend more on K-12 education. The legislators have now overridden a gubernatorial veto and reversed some of the tax cuts.

Many (if not all) credible studies of the interaction between tax rates for the wealthy and economic outcomes show either that 1) increasing taxes on the rich increases economic growth and other indicators of economic success and well-being or 2) there is no link between top tax rates and the economic benefits the proponents of tax cuts and trickle-down economics claim.

In the 1950s, the top tax rate was 91% – and the economy was booming. It was 70% in 1980 when President Reagan took office and he cut it to 50%. The 2017 tax cut cut the top rate to 37%! As Hanauer states in his TED Talk, if cutting tax rates on the rich led to economic growth and job creation, our economy would be exploding and everyone would have great jobs given that today’s top rate is only 37%.

Finally, Hanauer notes (accurately) that consumer spending is what drive the US economy; it accounts for 70% of GDP. Current levels of inequality mean that rich people (and corporations) literally have more money than they know what to do with. With income and wealthy that is over 1,000 times that of the average American, they can’t buy 1,000 houses, or 1,000 times as many cars, clothes, and food items.

Therefore, putting more money in the hands of the middle class, workers, and low-income people will boost the economy because they will spend it in the local economy. They will also invest some of the money in human capital development, i.e., education and training, for themselves and their children. These investments in human capital are key to spurring future growth and success for our economy.

Hanauer states that anything governments spend money on will pump more money into our economy that what the rich do with their excessive amounts of money. Low wages and high levels of inequality cause slow growth. Therefore, increasing inequality by cutting taxes on the rich will not spur economic growth. A 2014 report from the Organisation for Economic Cooperation and Development (OECD) concluded that growing economic inequality in the US had reduced its economic growth by 9% over the previous 20 years.

In conclusion, we need to reduce economic inequality in the US as a matter of fairness and to live up to our ideals of equal opportunity and that all people are created equal. We also need to reduce inequality to spur economic growth today and in the future.

To reduce economic inequality, we need to increase taxes on the rich and invest the revenue in good jobs (e.g., rebuilding our infrastructure), in human capital (e.g., education and training from birth and throughout careers), and in a safety net (e.g., unemployment insurance and guaranteed healthcare) to support people who fall on hard times.

These steps will allow the United States to live up to its ideals and principles of equal opportunity, will boost our economy, and will contribute to creating a fairer, more just society that supports all children and families.

[1]      Isidore, C., 3/4/13, “Buffet says he’s still paying lower tax rate than his secretary,” CNNMoney (https://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/index.html)

[2]      Long, H., 9/17/18, “‘I support higher taxes’: the billionaire behind the National Debt Clock has had it with Trump,” The Washington Post

[3]      Hanauer, N., Summer 2018, “Want to expand the economy? Tax the rich!” The American Prospect (http://prospect.org/article/want-expand-economy-tax-rich)